A company does $100 million in sales. It has some degree of pricing power in that it

sells its output for $10 where it costs it $8 to make. Its advertising is highly effective. For every

one percent it increases its advertising budget, its output increases by five percent. Unfortunately,

its advertising is very aggressive because it causes its competitors to increase theirs by two

percent for every one percent the company increases its own. When its competitors increase their

budgets by one percent, it causes problems for the company in that demand for its output falls by

two percent. Calculate how much, in dollars, the company should spend on advertising.

Answer rating: 100% (QA)

To calculate the optimal advertising spend for the company we need to find the point where the benefits of increased advertising increased output are ... View the full answer